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Article published by RJS Wealth Management Pty Ltd

The new super reforms come into force on 1 July. Many of these changes impact only a tiny percentage of the population, but if you’re a part of the 1{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}, that impact could be significant. We want you to be aware and be prepared.

It’s June  already. The year is flying by. If there’s any action you can take before July 1 that will save you tax, or allow you to contribute more to your fund without penalty, then you should begin to investigate, especially if you’re planning to make a large contribution. The reduction of the annual cap on non-concessional (after tax) contributions from $180k to $100k from July 1 means investors should make any large planned contributions before the end of financial year.

Non-concessional contributions- what are they again?

Non-concessional super contributions are those on which tax has already been paid. If it’s money from a property sale, capital gains tax has been paid. If it’s out of income savings, income tax has been paid. Non-concessional contributions are not super guarantee payments or salary sacrifice payments or tax deductible contributions. It’s simply any amount you contribute to super on which tax has already been paid. Investors commonly make a large lump sum non-concessional contributions after they sell a property, or receive a pay out from work or a bonus.

Before 1 July 2017 the annual cap on these contributions was $180,000. And people aged under 65 could bring forward two years of contributions and deposit up to $540,000 in one financial year (and pay no more contributions for the next two years).

So, what’s changing after 1 July 2017?

Post 1 July the annual limit for non-concessional contributions will drop from $180,000 to $100,000. Investors can still bring forward two years of contributions and deposit up to $300,000 into super during 2017/18, (and make no further contributions until the cap resets in 2020/21).

There’s no time like now to make a large contribution

So, if you’re planning to make a large contribution to your super, it would be wise to do so before 1 July 2017 if you can. There’s potential, if you act quickly, to still make a $540,000 contribution to your super before the cap drops to $300,000 on July 1. The government has also announced transitional bring forward balances for people who contributed more than $180,000 in 2015/16 or 2016/17. If you wish to make a large payment (or several), to speak to your financial advisor to make sure you’re not at risk of breaching your cap.

Case Study: Jake received a large bonus from work on 31 March. PAYG tax has been paid on the sum, and $160,000 has been deposited into his bank account. He can contribute the entire amount to super before July 1 because the $180,000 annual cap still applies. In 2017/18 he receives another bonus (after tax) of $180,000 which he would like to contribute to superannuation. The new non-concessional contribution limit of $100,000 per year and the $300,000 bring forward cap are now in place. The government’s transitional laws on bring forward balances may allow Jake to pay all or a large percentage of his second bonus into superannuation, but he should speak to his financial adviser before making any contributions.

If your super balance is at or close to $1.6m, be prepared

As of 1 July 2017 those with a super account balance of $1.6m or above can no longer make non-concessional contributions. The non-concessional cap of $300,000 can only be brought forward to a value that will not breach the cap.

Case Study: Susan’s super balance is $1.47m at 1 July 2017. Her bring forward cap for the next three years is only $130,000 (not $300,000) as this will take her overall super balance to $1.6m.Anyone wishing to make a large non-concessional contribution before 1 July 2017 who also has a super balance close to $1.6 million should speak to their financial adviser. Superannuation balances over $1.6 million after 1 July 2017 will be subject to new rules. Previous tax concessions on superannuation balances are changing. Individuals will not be allowed to commence a pension with more than $1.6m as per the new Transfer Balance Cap rule.

We will discuss the implications and meaning of the Transfer Balance Cap in our next blog.

Act now because July 1 will be here before we know it

If you have any plans at all for large non-concessional super contributions, expectations of property sales, windfalls, bonuses or estate payments, the time to act is now. Even if you were just toying with the idea of putting some of your excess cash into super, it will take time to make certain you’re acting within the rules, old, new and transitional. Speak to your financial adviser, tell them your plans or intentions and reassure yourself your intended transactions are all above board.

RJS Wealth Management are experts on the upcoming super reforms. Call us on 1300 27 28 29 and speak to one of our advisers about your plans for contributions or with any questions at all about what the new reforms mean to you and your super.

Over to you

Are you ready for July 1? What action have you taken to prepare for the super reforms?

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.